Rupee drops to a new low

mumbai — The Indian rupee’s unabated fall continued for the sixth straight session on Wednesday, hitting yet another closing low of 71.75 against the US currency (19.54 against the dirham) as surging oil prices and weak trend in emerging market currencies weighed on sentiments.

Intra-day, the domestic unit plummeted to a historic low of 71.97 a dollar (19.60 per dirham) before finding some respite, staging some recovery towards the tail-end. The battered rupee has lost 165 paise in the last six trading sessions.

However, the Reserve Bank swung into action to put a floor under the sliding currency and stave off a full-blown meltdown.

Heavy sell-off in local equities also weighed on the forex front. The home currency on Wednesday opened higher by 18 paise at 71.40 a dollar.

The bond yield curve, however, softened to 8.05 per cent.

Besides twin deficits phenomenon, the domestic economy faces a set of risks at this juncture, a forex dealer warned.

India is vulnerable to large scale capital flight if the uncertainty persist and may see investors make their way back into developed markets due to rising interest rates in the US and other major economies.

Any further sharp erosion in the rupee would lead to a wave of corporate bankruptcies and rating impact on these companies as they have kept most of their foreign currency exposures unhedged largely betting on rupee stability, he added.

At the inter-bank foreign exchange market, the rupee resumed higher at 71.40 against overnight close of 71.58 on fresh bouts of dollar selling by state-run banks. It strengthened to 71.37 a dollar in late morning deals before collapsing to historic lows on panic dollar buying. —